Saturday, December 25, 2010

Behold a New and Wonderous Mystery

Homily on the Nativity of the Lord
By St. John Chrysostom

BEHOLD a new and wondrous mystery.

My ears resound to the Shepherd’s song, piping no soft melody, but chanting full forth a heavenly hymn. The Angels sing. The Archangels blend their voice in harmony. The Cherubim hymn their joyful praise. The Seraphim exalt His glory. All join to praise this holy feast, beholding the Godhead here on earth, and man in heaven. He Who is above, now for our redemption dwells here below; and he that was lowly is by divine mercy raised.

Bethlehem this day resembles heaven; hearing from the stars the singing of angelic voices; and in place of the sun, enfolds within itself on every side, the Sun of justice. And ask not how: for where God wills, the order of nature yields. For He willed; He had the power; He descended; He redeemed; all things yielded in obedience to God. This day He Who is, is Born; and He Who is, becomes what He was not. For when He was God, He became man; yet not departing from the Godhead that is His. Nor yet by any loss of divinity became He man, nor through increase became He God from man; but being the Word He became flesh, His nature, because of impassability, remaining unchanged.

And so the kings have come, and they have seen the heavenly King that has come upon the earth, not bringing with Him Angels, nor Archangels, nor Thrones, nor Dominations, nor Powers, nor Principalities, but, treading a new and solitary path, He has come forth from a spotless womb.

Since this heavenly birth cannot be described, neither does His coming amongst us in these days permit of too curious scrutiny. Though I know that a Virgin this day gave birth, and I believe that God was begotten before all time, yet the manner of this generation I have learned to venerate in silence and I accept that this is not to be probed too curiously with wordy speech.

For with God we look not for the order of nature, but rest our faith in the power of Him who works.

What shall I say to you; what shall I tell you? I behold a Mother who has brought forth; I see a Child come to this light by birth. The manner of His conception I cannot comprehend.

Nature here rested, while the Will of God labored. O ineffable grace! The Only Begotten, Who is before all ages, Who cannot be touched or be perceived, Who is simple, without body, has now put on my body, that is visible and liable to corruption. For what reason? That coming amongst us he may teach us, and teaching, lead us by the hand to the things that men cannot see. For since men believe that the eyes are more trustworthy than the ears, they doubt of that which they do not see, and so He has deigned to show Himself in bodily presence, that He may remove all doubt.

Christ, finding the holy body and soul of the Virgin, builds for Himself a living temple, and as He had willed, formed there a man from the Virgin; and, putting Him on, this day came forth; unashamed of the lowliness of our nature.

For it was to Him no lowering to put on what He Himself had made. Let that handiwork be forever glorified, which became the cloak of its own Creator. For as in the first creation of flesh, man could not be made before the clay had come into His hand, so neither could this corruptible body be glorified, until it had first become the garment of its Maker.

What shall I say! And how shall I describe this Birth to you? For this wonder fills me with astonishment. The Ancient of days has become an infant. He Who sits upon the sublime and heavenly Throne, now lies in a manger. And He Who cannot be touched, Who is simple, without complexity, and incorporeal, now lies subject to the hands of men. He Who has broken the bonds of sinners, is now bound by an infants bands. But He has decreed that ignominy shall become honor, infamy be clothed with glory, and total humiliation the measure of His Goodness.

For this He assumed my body, that I may become capable of His Word; taking my flesh, He gives me His spirit; and so He bestowing and I receiving, He prepares for me the treasure of Life. He takes my flesh, to sanctify me; He gives me His Spirit that He may save me.

Come, then, let us observe the Feast. Truly wondrous is the whole chronicle of the Nativity. For this day the ancient slavery is ended, the devil confounded, the demons take to flight, the power of death is broken, paradise is unlocked, the curse is taken away, sin is removed from us, error driven out, truth has been brought back, the speech of kindliness diffused, and spreads on every side, a heavenly way of life has been ¡in planted on the earth, angels communicate with men without fear, and men now hold speech with angels.

Why is this? Because God is now on earth, and man in heaven; on every side all things commingle. He became Flesh. He did not become God. He was God. Wherefore He became flesh, so that He Whom heaven did not contain, a manger would this day receive. He was placed in a manger, so that He, by whom all things arc nourished, may receive an infants food from His Virgin Mother. So, the Father of all ages, as an infant at the breast, nestles in the virginal arms, that the Magi may more easily see Him. Since this day the Magi too have come, and made a beginning of withstanding tyranny; and the heavens give glory, as the Lord is revealed by a star.

To Him, then, Who out of confusion has wrought a clear path, to Christ, to the Father, and to the Holy Spirit, we offer all praise, now and forever. Amen.

Tuesday, December 14, 2010

MERS Debacle

I don't discuss economic issues much, but these last months have seen the development of some very significant issues. While the press and the various State's AG's talk about 'Robo-signers' (a problem to be sure), there is another quiet disaster going on.

This is an opinion piece of my own:

If you have not heard of the MERS crisis, do not be surprised - it is but one of the many quiet disasters going on in our economy.

It's gotten some airplay, but it's probably too bewilderingly technical for most to spend some time with.

Basically, MERS was established in approximately 1993 so that big banks could have Mortgage Brokers "lend money" and quickly transfer the mortgages around without further recording of various assignments so that this "mortgage paper" could be directed into certain mortgage-paper-backed investment certificate vehicles sold to investors.

Several courts are now questioning the whole house of cards as having blown traditional land law regarding transfer of mortgages and bringing into question the validity of a huge number of foreclosures, as well as transfers of mortgage-paper into these investment vehicles.

In many cases (one quoted from the Kansas Supreme Court at length below), the problem is that MERS seems to have gotten the promissory note separated from the mortgage

Here's the scenario background, as described by one court (sorry for the lengthy quote):

The mortgage instrument states that MERS functions "solely as nominee" for the lender and lender's successors and assigns. The word "nominee" is defined nowhere in the mortgage document, and the functional relationship between MERS and the lender is likewise not defined. In the absence of a contractual definition, the parties leave the definition to judicial interpretation.

What meaning is this court to attach to MERS's designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant--their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage "in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not." He later stated that the nominee "is the mortgagee and is holding that mortgage for somebody else." At another time he declared on the record that the nominee

"is more like a trustee or more like a corporation, a trustee that has multiple beneficiaries. Now a nominee's relationship is not a trust but if you have multiple beneficiaries you don't serve one of the beneficiaries you serve the trustee of the trust. You serve the agent of the corporation."

Counsel for the auction property purchasers stated that a nominee is "one designated to act for another as his representative in a rather limited sense." He later deemed a nominee to be "like a power of attorney."

Black's Law Dictionary defines a nominee as "[a] person designated to act in place of another, usu. in a very limited way" and as "[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others." Black's Law Dictionary 1076 (8th ed. 2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.

In its opinion below, the Court of Appeals cited Thompson v. Meyers, 211 Kan. 26, 30, 505 P.2d 680 (1973), which provides the only discussion in Kansas of the legal significance of a nominee:

"In common parlance the word 'nominee' has more than one meaning. Much depends on the frame of reference in which it is used. In Webster's Third New International Dictionary, unabridged, one of the definitions given is 'a person named as the recipient in an annuity or grant.' We view a 'nominee', as the term was used by the parties here, not simply in the sense of a straw man or limited agent. . . , but in the larger sense of a person designated by them to purchase the real estate, who would possess all the rights given a buyer . . . ."

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, ___ B.R. ___, 2009 WL 631355, at *4 (Bankr. D. Idaho March 12, 2009) (MERS "acts not on its own account. Its capacity is representative."); Mortgage Elec. Registration System, Inc. v. Southwest, ___ Ark. ___, ___, ___ S.W.3d ___, 2009 WL 723182 (March 19, 2009) ("MERS, by the terms of the deed of trust, and its own stated purposes, was the lender's agent"); LaSalle Bank Nat. Ass'n v. Lamy, 2006 WL 2251721, at *2 (N.Y. Sup. 2006) (unpublished opinion) ("A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.")

The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is "[o]ne to whom property is mortgaged: the mortgage creditor, or lender." Black's Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting "solely" as the nominee of the lender.

Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.

"The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust." Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).

The Missouri court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. "MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force." 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal. 2008) ("[I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner."); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. 2008) (unpublished opinion) ("[F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned. . . . MERS purportedly assigned both the deed of trust and the promissory note. . . . However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority . . . to assign the note.").

What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. See Sheridan, ___ B.R. at ___ ("MERS is not an economic 'beneficiary' under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid."). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. 517 ("[w]hile the note is 'essential,' the mortgage is only 'an incident' to the note" [quoting Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L. Ed 313 (1872)]).

When it found that MERS did not have an interest in the property that was impaired by the default judgment, the trial court properly considered four factors: (1) that the written pleadings and oral arguments by MERS and Sovereign identified MERS as acting only as a digital mortgage tracking service; (2) that counsel for MERS insisted that no evidence of a financial or property interest was necessary and its argument rested solely on its identity as the mortgagee on the mortgage document, when counsel was directly challenged to produce evidence of a financial or property interest; (3) that evidence showed that Sovereign was on notice that Landmark had leave of the bankruptcy court to proceed with foreclosure and that MERS did not attempt to intervene in the action until after its alleged principal, Sovereign, had already had its motion to intervene and to set aside judgment denied; and (4) that the case law submitted by the parties weighed more in favor of denying the motion. These factors were properly before the trial court and were consistent with the evidence and supported the court's legal reasoning.

Counsel for MERS explicitly declined to demonstrate to the trial court a tangible interest in the mortgage. Parties are bound by the formal admissions of their counsel in an action. Dick v. Drainage District No. 2, 187 Kan. 520, 525, 358 P.2d 744 (1961). Counsel for MERS made no attempt to show any injury to MERS resulting from the lack of service; in fact, counsel insisted that it did not have to show a financial or property interest.

MERS argued in another forum that it is not authorized to engage in the practices that would make it a party to either the enforcement of mortgages or the transfer of mortgages. In Mortgage Elec. Reg. Sys. v. Nebraska Dept. of Banking, 270 Neb. 529, 704 N.W.2d 784 (2005), MERS challenged an administrative finding that it was a mortgage banker subject to license and registration requirements.

The Nebraska Supreme Court found in favor of MERS, noting that "MERS has no independent right to collect on any debt because MERS itself has not extended credit, and none of the mortgage debtors owe MERS any money." 270 Neb. at 535. The Nebraska court reached this conclusion based on the submissions by counsel for MERS that

"MERS does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance, or provide any loan servicing functions whatsoever. MERS merely tracks the ownership of the lien and is paid for its services through membership fees charged to its members. MERS does not receive compensation from consumers." 270 Neb. at 534.

Even if MERS was technically entitled to notice and service in the initial foreclosure action--an issue that we do not decide at this time--we are not compelled to conclude that the trial court abused its discretion in denying the motions to vacate default judgment and require joinder of MERS and Sovereign. The record lacks evidence supporting a claim that MERS suffered prejudice and would have had a meritorious defense had it been joined as a defendant to the foreclosure action. We find that the trial court did not abuse its discretion and did not commit reversible error in ruling on the postdefault motions.

We note that various arguments were presented suggesting that economic policy provides independent grounds for reversing the trial court. MERS and the amicus curiae American Land Title Association argue that MERS provides a cost-efficient method of tracking mortgage transactions without the complications of county-by-county registration and title searches. The amicus suggests the statutory recording system is grounded in seventeenth-century property law that is entirely unsuited to twentieth-century financial transactions. While this may be true, the MERS system introduces its own problems and complications.

One such problem is that having a single front man, or nominee, for various financial institutions makes it difficult for mortgagors and other institutions to determine the identity of the current note holder.

"[I]t is not uncommon for notes and mortgages to be assigned, often more than once. When the role of a servicing agent acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees." In re Schwartz, 366 B.R. 265, 266 (Bankr. D. Mass. 2007).

"[T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors . . . , should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee." Johnson, 2008 WL 4182397, at *4.

The amicus argues that "[a] critical function performed by MERS as the mortgagee is the receipt of service of all legal process related to the property." The amicus makes this argument despite the mortgage clause that specifically calls for notice to be given to the lender, not the putative mortgagee. In attempting to circumvent the statutory registration requirement for notice, MERS creates a system in which the public has no notice of who holds the obligation on a mortgage.

The Arkansas Supreme Court has noted:

"The only recorded document provides notice that [the original lender] is the lender and, therefore, MERS's principal. MERS asserts [the original lender] is not its principal. Yet no other lender recorded its interest as an assignee of [the original lender]. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state." Southwest Homes, ___ Ark. at ___.

In any event, the legislature has established a registration requirement for parties that desire service of notice of litigation involving real property interests. It is not the duty of this court to criticize the legislature or to substitute its view on economic or social policy. Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, 348, 789 P.2d 541 (1990).

quoted from the aptly named Kansas Supreme Court Landmark case - slip op available here: Opinion

There estimated to be about 60 million mortgages with MERS as nominee in this country. Interestingly, I have seen evidence that MERS and the banks are acting to quickly rectify their errors and have actual recorded assignments done before they start a new foreclosure. I suppose that is good. However, the robotic behavior and strong desire to avoid doing the basic work of recording mortgages in the traditional way continues. I wouldn't be surprised to see some move to nationalize the mortgage recording system, at least for the big National Association type of lenders. There are already numerous laws that exempt such players from otherwise applicable State law requirements about mortgages and trust deeds.

The big problem is really with loans made in the (very roughly) 2004-2007 timeframe. And the problem isn't, sadly, as much with the poor borrowers who will ultimately get foreclosed. It's with the investors in the securitized investment vehicles who are waking up to realize that the trusts that are supposed to be holding certain mortgage paper may not be holding anything because transfers weren't done properly. This may give a right for the trust to "put back" the asset to the banks and demand the investors money back - something the banks simply can't swallow because it would mean yet another round of disaster.

Here is an article which covers most of the basics of the investor problem:

Businessweek Article

So is the economy going to rebound? My bet is, not yet. I think there's a lot of hot air to be let out yet.